In Short
- Franchise agreements typically do not renew automatically and you must follow the terms set in the agreement.
- A franchisor must notify you within a specific time frame before the term expires to request a renewal.
- A renewal fee may apply, and the terms of the new agreement could differ from the original.
Tips for Businesses
When looking to renew your franchise agreement, start early. Review the renewal procedure and ensure you and the franchisor meet the required deadlines. Be prepared for potential changes in terms and the possibility of a renewal fee. Having a franchise lawyer to help negotiate the terms can make a significant difference.
Franchise agreements typically have a fixed term and expiry date. In other words, they are finite and do not automatically renew, unless the terms of the franchise agreement allow this. To renew the franchise agreement and avoid the franchise relationship coming to an abrupt end, it would be worthwhile to familiarise yourself with the procedures set out in the terms of the franchise agreement. This article outlines how you can renew a franchise agreement.
Terms and Provisions of Renewal
To commence the franchise renewal process, the first crucial step involves thoroughly reviewing the renewal procedure outlined in the franchise agreement. Under the new Franchising Code of Conduct, set to take effect April 1 2025, franchisors are required to provide notice to the franchisee, in writing, of whether they intend to:
- extend the agreement;
- enter into a new agreement with the franchisee; or
- do neither of the above.
The timing requirement for this notice is dependent on the length of the term of the franchise agreement. If the term is:
- six months or longer, you must provide notice at least six months before the end of the agreement; or
- less than six months, you must provide notice at least one month before the end of the agreement.
Renewal Fee
Once notice is given, the franchisee may still be required to pay the franchisor a ‘renewal fee’. This is usually detailed in the terms of the franchise agreement. The renewal fee is something that franchisees should anticipate well in advance, as it can be quite expensive. The franchisor may then require the franchisee, in order to renew the franchise agreement, to sign the “then current franchise agreement”. The terms may vary from the original agreement, so you should review the new Franchise Agreement with your franchise lawyer.
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Negotiation
You can negotiate the terms of the new franchise agreement to include additional terms by special conditions. For example, sometimes special conditions will be included to further clarify the renewal process. These conditions may relate to the conduct of the franchisor, such as that the franchisor must act reasonably and in good faith when deciding whether or not to grant a renewal.
The new Franchising Code of Conduct has addressed some of these issues, such as the good faith requirement. It is common for the franchise lawyer negotiating on behalf of the franchisee to request that the terms of the new franchise agreement be “substantially the same commercial terms”. Along with this, the franchise lawyer might add that the renewal fee and its calculation method be adjusted in favour of the franchisee.
Key Takeaways
It is important to thoroughly review the terms outlined in the franchise agreement when considering the renewal process. Understanding specific details, such as notice requirements, is highly beneficial for franchisees. It is essential for franchisees to engage a franchise lawyer to negotiate favourable terms, including addressing additional conditions and renewal fees and ensuring the new agreement aligns with the franchisee’s interests.
If you are renewing a franchise agreement, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
If the franchisor fails to provide notice within the required time frame, or if you miss the deadline for receiving notice, it could complicate the renewal process. It is crucial to track the deadlines specified in your franchise agreement to ensure you do not miss the opportunity to negotiate or renew the agreement. In some cases, you may need to address the issue legally, so consulting with a franchise lawyer is recommended.
Yes, it is possible to negotiate the renewal fee, particularly if you are working with a franchise lawyer. They can assist in adjusting the fee or its calculation method to make it more favourable for you. However, the extent of the negotiation will depend on the franchisor’s policies and the overall terms of the new franchise agreement.
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